The case for yen appreciation

With Japanese general elections looming on Sept. 11, the bullish case for yen appreciation is building. The U.S. dollar/yen rate pushed lower in mid August and analysts say additional yen strength could be in the cards in the weeks and months ahead.

The catalyst for renewed yen strength vs. the U.S. dollar in early to mid-August came in the wake of the Japanese parliament’s rejection of Prime Minister Junichiro Koizumi’s postal reform bill. Koizumi quickly called for general elections on Sept. 11 in an attempt to rally support for postal privatization. Koizumi’s aggressive reform agenda would ultimately split the Japanese postal service into four units and would result in the creation of the world’s largest private bank. Some analysts argue this privatization would ultimately be bullish for the Japanese economy.

“The post office in Japan also acts like a bank,” explains Tim Mazanec, currency strategist at Investors Bank and Trust. “Most people also have a savings account with them.”

Mazanec estimates the savings held by the post office total around $3.2 trillion.